Bangladesh: The new frontier

In the wake of Citi establishing an investment banking presence in Bangladesh, we talk to chief country officer Mamun Rashid about the opportunities that the market presents.
Bangladesh remains one of the few remaining outposts in investment banking in Asia. But banks are steadily investing in the country and last year Citi established an investment banking presence in Bangladesh. The bank's chief country officer for the country, Mamun Rashid, explains what opportunities lay ahead for Citi in Bangladesh.

What investment banking opportunities are there in Bangladesh?
There is a wide range of opportunities to help clients in Bangladesh raise capital to support their growth or advise them on opportunities to grow either domestically or internationally. We are also seeing an increased interest from companies looking to invest in Bangladesh.

A recent example of this would be the announcement in mid-June where AK Khan & Co signed a definitive agreement for the sale of its 30% stake in TMIB to NTT DoCoMo for a purchase consideration of $350 million. [TMIB is the third largest mobile operator in Bangladesh, with around 7.1 million subscribers as of December 2007: AKK is one of the largest and oldest private sector corporations in Bangladesh.]

The acquisition by NTT DoCoMo will serve to increase its footprint in the fast growing Asian wireless market. What better example of the increasing international investment appetite into Bangladesh than an investment by one of the worldÆs leading corporations?

On the capital markets front, the pace of privatisation is increasing and the government has started floating state-owned enterprises. Last year alone 14 companies were listed on the Dhaka Stock Exchange through IPOs. The pace of reform has been impressive and the government and regulators have done a good job in promoting development. Over the past five years the Asian Development Bank along with the Securities Exchange Commission have developed new trading rules, public issue rules, settlement systems and bond issuance rules to govern the market and create more transparency in the marketplace.

More and more companies in Bangladesh are also increasingly using risk management products and hedging in todayÆs volatile global markets. This is also something where we can play a role via our equities, fixed income, currencies and commodities teams to help clients navigate these volatile markets, including hedging against future rises in commodities prices.

What is Citi's history in Bangladesh?
Citibank established its presence in Bangladesh through a representative office in 1987. The bank opened its first full-service branch in Dhaka in 1995 and the second branch in Chittagong in 2000. At present, Citibank Bangladesh has four branches, and two offshore banking units in the export processing zones in both Dhaka and Chittagong.

Our operations include the major business units of CitiÆs Institutional Clients Group, such as corporate and commercial banking, global transaction services. We also received a license for investment banking operations earlier this year.

How sophisticated are some of Bangladesh's leading companies? What products and services do they use?
There is a noticeable increase in sophistication, the dialogue we are having with some of our clients in the country is evolving fast: 'What are my opportunities in the international capital markets?' or 'Give me some local and regional ideas to help me grow our business...' are now regular discussions that were not so common just a few years ago.

Our main business though remains in the global transaction services space. Many companies in Bangladesh are looking for-cost effective and flexible transaction management services. In April, Citi signed a network arrangement which will allow our clients to use the more than 10,000 post offices in Bangladesh for their regular banking services. Also this year we signed an agreement with Dhaka Electric Supply Authority to offer our CitiConnect services to help them facilitate online bill collections and payment services. We are also active in the corporate and commercial banking space, providing corporate loans and other products to small- and medium-sized companies and multinationals in the country.

Bangladesh is also a pioneer in the field of microfinance services and we were honoured to have led the worldÆs first micro credit securitisation for BRAC in 2007, allowing BRAC to diversify its funding sources and help develop the microfinance sector in Bangladesh.

What are some of the challenges?
Let me give you a vision. It is the year 2021, the golden jubilee of independence. Bangladesh has just become a poverty-free, middle-income nation with a per capita income exceeding $3,000. Bangladesh is well on its way to become the 22nd largest economy in the world and a globally integrated regional economic and commercial hub. Economists around the world are at awe at the overwhelming success of this South-Asian nation. It seems just a few years ago in fact, that it used to be called the poorest of the poor. The recent track record of the country certainly gives us hope that we will indeed be able to see this vision materialise.

The World Bank calls the phenomenon the Bangladesh Paradox. The Bangladesh economy has steadily accelerated in recent years, with growth reaching almost 7% in fiscal 2006-2007. In spite of the countryÆs troubled political environment and poverty, it has scored particularly well on socioeconomic indicators. Global banks and multilateral institutions present a highly optimistic outlook. Points they highlight: This impressive growth has occurred in a climate of political restructuring. The government is implementing reforms toward privatising many state-owned enterprises. The Dhaka Stock Exchange Index is at a 10-year high, up 66% this year, making it Asia's top performer after China. And the stock market is expected to double in size in 2008.

However, Bangladesh has failed to realise the full potential of its development prospects. Despite the major socioeconomic progress made in recent years, obstacles like political instability, poor resource mobilisation and a weak capital market are impeding the attainment of economic emancipation. Government revenues, at only 10.7% of gross domestic product, remain far too low to meet growing demand for infrastructure and social services. The countryÆs primary foreign exchange earner û the garment industry û is now more constrained by poor infrastructure, including ports, roads, rail, and power supply, than by inadequate trade access.

Some of these issues need to be addressed in the coming years if Bangladesh is to reach its full potential.

How easy is it to convince some of your seniors to visit Bangladesh when they come to Asia?
Most of my colleagues in Asia realise that Bangladesh has always had potential and this potential is now turning into reality so it is certainly getting easier. In the last 12 months, we have had more than 20 visits from our Asian senior management team and once they have come once, they want to come back û we do also have some excellent restaurants in the country, which helps. Global management is the next challenge and I am confident as our business grows and develops in Bangladesh, it will not be too long before Dhaka will be on the agenda of senior visits as the likes of Mumbai and Shanghai are now.

What is the outlook for the Bangladesh economy and what plans do you have to grow in Bangladesh?
We expect GDP to moderate in the coming year to 6% on the back of lower agricultural growth, rising inflation and political uncertainty. 2007 was a difficult year for Bangladesh with rising food prices, the floods and the devastating cyclone. Double digit inflation persists and remains a danger but the central bank has stated that growth is also a priority which should leave in place an accommodative monetary stance. On the external front, we expect the trade balance to widen further on the back of rising food imports and lower exports given the US slowdown.

But BangladeshÆs endurance in the face of growing adversity is well known. In spite of all the recent history, the economy maintained a growth rate of well over 6% in 2007. Similar to most developing economies, consumption continues to be a key driver for growth, comprising as much as 80% of GDP. I am confident that while the next 12 months will not be smooth, there is certainly every reason to be optimistic. As such, we will continue to invest and grow our business in the country to help Bangladesh and its companies develop further.
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